For those following the progress of the civil nuclear liability legislation, the Parliamentary Standing Committee report is available here. PRS Legislative has also put out a summary of the report’s key findings. A few additional observations are added below:

1. The amendment barring private operators from the nuclear power sector effectively renders the whole enterprise, except for the suppliers, a government business from start to finish. The government will both own and operate the plants and the insurer will probably be the GIC, another government entity. The government had made it clear even earlier that while it had no immediate plans to bring in private players at the moment, it intended the bill to be designed to keep that option open for later. That has now been foreclosed.

Ideally, NPPs ought to be run in accordance with sound business principles irrespective of who manages them. If the insurance liability limit is set in accordance with that framework (as it ought to be), precluding private players suggests an undesirable antipathy towards private capital. If the BJP is taking credit for this change, it ought to disabuse anyone of the notion that the party has come anywhere close to embracing conservative economic principles.

2. The committee has recommended allowing the government to increase the total liability by notification. That is a good move especially if the size of the disaster means that compensation amounts will not be adequate within the prescribed number.

3. Operators’ liability amount has been increased from Rs.500 crores to Rs.1500 crores. Only a summary of the GIC chairman’s briefing has been provided though that is arguably the most important testimony as it indicates the system’s capacity to pay for damages. He deposed that his organization can cover up to Rs.200 crore readily which I understand to mean will come out of other assets not connected to the nuclear business. This probably will cover only the ‘cold zone’, i.e. property distant from the nuclear reaction. For higher amounts up to Rs.500 crores, the GIC will work out a pool presumably comprising of all nuclear operators in the country and also hopes to obtain the support of international insurers (international insurers could, in theory, add directly to the insurance capacity or as is more likely, GIC could reinsure with international groups). It is not clear to me at present whether the participation of international firms will eventually materialize or not. Also, having decided to increase the limit to Rs.1500 crores and remove the government’s freedom to diminish the amount, no one seems to have thought of asking the secretary of Finance or the GIC chairman what they thought of this new figure. The implications of this change are thus not fully clear.

4. As the tweet from PRS Legislative stated (and some commentators have been crying hoarse about), cl.17 has been modified by adding the word ‘and’ at the end of cl.17(a). That is a plausible interpretation of the provision though a poor way to draft it. The reasoning offered by the committee is also strange and somewhat Orwellian – it claims that because cl.17(b) is weak and ineffective in compensation cases, this word ought to be added to cl.17(a) in effect weakening it further! The later sentence justifying the proposed change reads: “Even though the supplier is liable to the operator as per clause 17(a), (b) and (c) of the Bill, the Committee recommends that if a written contract between the operator and the supplier provides for the right of recourse, the operator, may, after compensating the victims, exercise his right of recourse against the supplier in accordance with the provisions of the contract.” One could infer these words to mean that if a contract specifies the terms of the right to recourse, its terms should prevail but what if the contract is silent upon the question or explicitly rules out a right to recourse (notwithstanding the committee’s insistence that the operator secure his interests through appropriate provisions in the contract)? If we go by the first part of that sentence, the Committee seems to acknowledge that the supplier is still liable though the enacted change seems to go the opposite way.

It seems that the government found itself caught in a bind with opposition from foreign suppliers and domestic pressure to retain it and hit upon this strategy to wriggle out of it. The outcome though is not an ideal one – a much better way would have been to honestly admit to the difficulties of retaining the provision in its present form and alter it to allow any contractual understanding to prevail over a default position of supplier liability much like it is in the South Korean law. With this change, it is quite possible that the matter will end up in court and with such ambiguity in the legislative history, there is no saying which way the outcome may go (perhaps that is what the government also wants allowing it room to play it both ways).

5. The extinction period for claiming compensation has been increased to 20 years and is to be calculated from the date at which the cause of action for such compensation arises. The 20 year figure seems to be a compromise between the 10 years proposed in the bill and the 30 years that activists were seeking at a minimum. There is no mention of how the insurer will look at this as that has been the key factor behind the limited extinction period in other countries. Perhaps with GIC being entrusted with the charge, the committee did not consider this an important factor.

6. Clause 46 which permits litigation under other laws has been another contentious provision. Critiques have said that it lacks clarity because which laws those might be is not clear while suppliers are worried that it undermines the channeling of liability, one of the main purposes of this legislation. The report proposes no specific changes but only says, “The Committee observes that both clauses 35 and 46 deal separately with legal remedies to the victims and feels that all the legal remedies available to the victims should be dealt together”. One could interpret that as a license to amend it to preclude such litigation but it might also be seen as hinting that the government should bring in specific provisions for tort action against the operator. The dissent on the other hand wants to expand its scope to specifically include suppliers and allow for litigation in foreign courts, an extreme view which would have undermined substantially any prospect of attracting foreign suppliers. Retaining it as is may also amount to leaving the job half done. The ball is now in the Cabinet’s court to decide how it wants to proceed.

In addition, there are a few other changes with regard to definitions that could make a difference in estimating compensation amounts. On the whole, some changes are salutary while others bring in an element of inflexibility which has its downside in a upcoming market with limited prior experience like ours. It is unfortunate that the recommendation to amend a very controversial provision has been accomplished through subterfuge. The Left will now exploit that fact and try to monopolize the opposition space with populist rhetoric about a “sell-out” by the bourgeouis parties to foreign interests.

What I am understanding is that only if the operator (in this case, the govt) and the supplier have a contract, is when the supplier will be held liable. Is this understanding correct? If so, does the GoI have an option to enter into a contract with the supplier and free him of any wrongdoing so that he will not be fined for possible lapses or say he will not be made to pay 1500crores? If not, what exactly will the terms of the contract be?

– Sudhir

pilid

Sudhir,

The short answer to your questions is yes and yes. Based on the most plausible interpretation of that provision, without a contractual agreement between the operator (i.e. GoI) and the supplier where the latter agrees to accept liability obligations, the operator cannot proceed against it. The GoI technically has the authority to absolve the supplier of liability for any wrongdoing.

The long answer is that the outcome could depend on many factors such as the negotiating power of both parties. If the GoI does incorporate such a provision, it could cause it considerable political trouble; so it may want to remain silent or only agree to incorporate more ambiguous wording. Foreign countries may not trust the wording of this provision enough and ask for bilateral treaty arrangements to reinforce the point. There is also the other factor of how the courts will view the issue if it ends up there as it surely will in the event of a nuclear incident. It is possible that a joint arrangement with the participation of both suppliers and operators could emerge so that the right to recourse will not have to be invoked or even if it is, the matter can be suitably settled out of court.

Lastly, these are still only the recommendations of the standing committee. The government may decide to tweak it further before the final version is passed.